By TIOL News Service

CHENNAI, MAR 17, 2017: THE ISSUE IS - Whether a donor can be faulted and denied benefit u/s 35AC, on ground of malpractices or discrepancy in the management of the Trust. NO is the answer.

Facts of the case:

The assessee had made donation of 2.5 crores to Mahila Utkarsh Sansthan Trust being an approved institution. The donations were deposited in the Trust's bank account. In this regard, the assessee also received from the trust the Form 58A for donations of 2 crores and Form 58A for the balance of 50 lakhs. However, a police complaint was lodged by the Trust President regarding the amounts deposited by secret donors in its bank account that these were withdrawn in huge amount by anonymous persons and no amount was received by the Trust for the utilization of its activities. The AO observed that since the intended donations as claimed by the assessee had not reached the actual trust as confirmed by the trustee, the donation made by the assessee was not truly and genuinely incurred for the activities of the trust. Accordingly, the AO denied relief u/s.35AC. The CIT(A), confirmed the action of the AO by observing that the statement of the President of the Trust clearly indicates that the assessee has diverted its taxable income under the garb of donation u/s 35AC which did not reach the objective of the Trust.

On Appeal, the Tribunal held that,

++ if there is a malpractice or misappropriation taken place in the Trust for which the assessee cannot be faulted and benefit u/s.35AC cannot be denied. Similar issue came for consideration before this Tribunal in the case of M/s. Mangal Tech Park Pvt. Ltd. In view of the binding order of the co-ordinate Bench of this Tribunal, taking a consistent view, the issue in dispute remanded to the file of the AO to reexamine the issue on a similar direction and also the claim of assessee has to be considered as valid, if it has transferred the funds to the Bank account opened in the name of an institution which was duly registered u/s 35AC on the said dates of transfer of funds. Further, if there is a malpractice or discrepancies in the management of the Trust Account for which the assessee cannot be responsible so as to deny the benefit u/s 35AC.

(See 2017-TIOL-315-ITAT-MAD)